How do I claim the solar tax credit (ITC)? Form 5695 instructions
Updated: Jan 21, 2019
If you’re considering solar, you’ve probably heard about the federal solar tax credit, also known as the Investment Tax Credit (ITC). The Federal ITC makes solar more affordable for homeowners and businesses by granting a dollar-for-dollar tax deduction equal to 30% of the total cost of a solar energy system.
What does 30% actually mean for the average solar shopper? According to EnergySage marketplace data, the average national gross cost of installing a solar panel system in 2018 is $18,840. At that price, the solar tax credit can reduce your federal tax burden by $5,652 – and that’s just one of many rebates and incentives that can reduce the cost of solar for homeowners. There’s plenty of information out there about the value of the residential ITC, but figuring out how to actually claim the credit when it comes time to file your taxes is another story. We’ll walk you through the instructions step by step from Form 5695 to Form 1040.
Form 5695 instructions: the 3 steps to claim the solar tax credit
Determine if you are eligible for the Federal ITC – make sure you credit for ownership and that federal tax liability are in order
Complete IRS Form 5965 to validate your qualification for renewable energy credits
Add your renewable energy credit information to your typical form 1040
First things first: am I eligible for the solar tax credit?
You are eligible for the Federal ITC as long as you own your solar energy system, rather than lease it. If you sign a lease agreement, the third-party owner gets the solar tax credit associated with the system. This is also true for the vast majority of state and local incentives for solar, although in some special cases a lease will grant you the financial benefits associated with the sale of solar renewable energy certificates (SRECs). You are also eligible even if the solar energy system is not on your primary residence – as long as you own the property and live in it for part of the year, you can claim the solar tax credit.
If your federal tax liability is lower than the total amount of your ITC savings, you can still take advantage of it by carrying over any remaining credits to the following year.
Here’s an example: You pay $20,000 to install a solar system on your home in 2018, which means you are eligible for a $6,000 federal solar tax credit. If your federal tax liability for 2018 is only $4,500, you will owe no federal taxes that year, and in 2019, you will reduce your tax liability by $1,500.